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Ultimate Guide to Music Royalties Investing

4 min read
Adam Koprucki
Written by
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Turn up the volume on your investment portfolio with music royalties, the hidden gem asset class that offers the potential for steady, passive income and diversification

What are Music Royalties?

Music royalties are a type of alternative investment where payments are made to music creators and rights holders for their music. They are a form of compensation for using intellectual property, in this case, the music itself.

There are several types of music royalties, including mechanical, performance, synchronization, and print royalties.

Mechanical Royalties

Mechanical royalties are paid to songwriters and publishers for using their music on physical or digital recordings, such as C.D.s, downloads, or streaming services. The rate for mechanical royalties is usually set by law, and in the United States, it is currently set at 9.1 cents per song per copy sold.

Performance Royalties

Performance royalties are paid to songwriters and publishers for using their music in public performances, such as radio and T.V. broadcasts, live performances, and streaming services. These royalties are collected by performance rights organizations (PROs) such as ASCAP, BMI, and SESAC. They are distributed to the rights holders based on the number of performances of their music.

Synchronization Royalties

Synchronization royalties are paid to songwriters and publishers for using their music in movies, T.V. shows, commercials, and other visual media. These royalties can vary widely depending on the type of usage, the song’s popularity, and the parties’ bargaining power.

Print Royalties

Print royalties are paid to songwriters and publishers for using their music in printed sheet music or songbooks.

What Type Of Returns Can you Expect?

Music royalties can provide a reliable and steady income stream for investors, with returns ranging from a few percentage points to double-digit returns.

The returns from investing in music royalties can vary widely and depend on several factors, including:

  • Popularity of the music
  • Type of royalty
  • Length of the royalty agreement

For example, mechanical royalties from physical and digital music sales may offer a fixed rate of return of around 9.1 cents per song per copy sold. In contrast, performance royalties may offer a variable rate based on the number of plays or performances.

In some cases, investors may be able to negotiate a higher rate of return by acquiring a music catalog or song that is particularly popular or has a proven track record of generating royalties.

Music Royalty

How You Can Invest In Music Royalties

Investing in music royalties can be a unique and potentially lucrative investment opportunity, but it requires a good understanding of the music industry and the legal framework around royalties.

Here are some ways to invest in music royalties:

Royalty Exchange

Royalty Exchange is an online marketplace where investors can buy and sell music royalties. The platform offers a variety of royalty types, including mechanical royalties, performance royalties, and streaming royalties.

Music Royalty Funds

Some investment firms and hedge funds offer music royalty funds that allow investors to pool their money and invest in a diversified portfolio of music royalties.

Direct Licensing

You can also directly license music from independent artists or labels and negotiate a percentage of the royalties generated by the music.

Music Catalog Acquisitions

Investors can also acquire music catalogs from artists, songwriters, or publishers. This requires significant capital but can provide long-term returns as the record generates royalty payments over time.

It’s important to do your research and work with experienced professionals in the music industry and legal field when investing in music royalties. 

As with any investment, there are risks involved, and it’s important to weigh the potential returns against the potential risks.

Invest in Music Stocks

Investing in music publishers, streaming services, record labels, and concert promoters can be an easy way to gain exposure to the potential returns of the music industry.

Investing in music stocks can offer an opportunity to profit from the music industry’s growth, which has seen a resurgence in recent years due to the popularity of music streaming services.

  • Spotify Technology S.A. (SPOT): Spotify is a music streaming service offering free and premium subscription-based services.
  • Universal Music Group (UMG): Universal Music Group is one of the world’s largest music companies, owning labels such as Interscope, Def Jam, and Island Records.
  • Live Nation Entertainment, Inc. (LYV): Live Nation is the world’s largest live entertainment company, owning venues, promoting concerts, and producing music festivals.
  • Warner Music Group Corp. (WMG): Warner Music Group is one of the world’s largest music companies, owning labels such as Atlantic Records, Warner Records, and Elektra Records.

Advantages of Investing In Music Royalties

Investing in music royalties can offer several advantages, including:

Steady Income Stream

Music royalties can provide a steady income stream as long as the music continues to be used and generate revenue. This makes them an attractive investment for investors seeking consistent returns.

Low Correlation with Other Asset Classes

Music royalties have a low correlation with traditional asset classes such as stocks and bonds, making them a valuable diversification tool for an investor’s portfolio.

Potential for Long-Term Returns

Music royalties have the potential to generate long-term returns as royalties can continue to be generated for decades or even centuries after a song is created.

Tangible Asset

Music royalties represent a tangible asset that can be bought and sold, like wine or real estate.

Predictable Income

Royalties from well-known songs with a proven track record of revenue generation can provide predictable income and a measure of security for investors.

Global Market

Music is a global industry, which means royalties can come from various sources worldwide, increasing the potential revenue stream for investors.

It’s important to note that investing in music royalties carries risks, including the potential for decreased revenue due to changes in the music industry or changes in consumer preferences. Investors should thoroughly research and understand the risks involved before investing in music royalties.

Risks of Investing In Music Royalties

Investing in music royalties also carries several risks, including:

Volatility of the Music Industry

The music industry can be unpredictable, and a song’s popularity can change rapidly, affecting the revenue generated from music royalties.

Changes in Consumer Preferences

Consumer preferences can shift, leading to changes in popular music types, ultimately, affecting the revenue generated from music royalties.

Legal Risks

Legal issues such as copyright infringement, licensing disputes, or changes in royalty rates can negatively affect the value of music royalties.

Lack of Transparency

The music industry can lack transparency, making it difficult for investors to determine the value of music royalties.

Difficulty in Valuing Music Royalties

Music royalties have no standardized valuation methods unlike other assets, such as stocks or real estate. This can make determining their value for capital gains or tax purposes difficult.

Concentration Risk

Investing in a single song or music catalog can lead to concentration risk, meaning the investor’s returns are tied to the success of one or a few songs. This increases the risk of a total loss if the music doesn’t perform as expected.

Investors should carefully consider these risks before investing in music royalties and seek the advice of experienced professionals in the music industry and legal field. A diversified portfolio of music royalties can help mitigate some of these risks.

The Bottom Line

Music royalties can be a unique and potentially lucrative investment opportunity for investors seeking alternative assets. However, it’s important to carefully consider the risks involved before making any investments.

The advantages of investing in music royalties include a steady income stream, low correlation with traditional asset classes, the potential for long-term returns, a tangible asset, predictable income, and a global market.

However, music royalties also carry risks, such as volatility of the music industry, changes in consumer preferences, legal risks, lack of transparency, difficulty in valuing music royalties, and concentration risk.

Investors should thoroughly research the music industry, understand the risks involved, and seek the advice of experienced professionals in the music and legal fields before investing in music royalties. A diversified portfolio of music royalties can help mitigate some of these risks.

Adam Koprucki

Expertise: Fixed-income investing, Macroeconomics, Personal Finance, Derivatives, Options, Index Funds

Professional Experience: J.P. Morgan, Deloitte Consulting, Societe Generale, The Vanguard Group

Education: Loyola University: Bachelor of Business Administration, University of North Carolina, Chapel Hill: Certificate in Capital Markets

Adam Koprucki is the founder of Real World Investor, an investing website dedicated to reviewing the newest and latest investing tools and providing unique market insights for beginner to intermediate investors.

Before starting Real World Investor, he spent over a decade working at some of the world's largest investment banks and investment managers, such as Citibank, J.P. Morgan, Societe Generale, Deloitte, and The Vanguard Group.

His experience includes working with complex financial products such as exotic interest rate derivatives, structured products, and structured credit.

A dedicated and enthusiastic investor, he is passionate about macroeconomics and options trading. His work has been published in Nasdaq, Yahoo Finance, GoBankingRates, and Seeking Alpha. He is also a contributing author at LendStart.